Vermilion Grows Powder River Footprint With $186 Million Acquisition

Vermilion Energy Inc. (NYSE: VET) recently boosted its position in the Powder River Basin through a $186 million acquisition with an undisclosed company, the company said Oct. 25.

In its third-quarter earnings report, Vermilion revealed it had acquired mineral land and producing assets during the quarter in Campbell County, Wyo., about 40 miles northwest of the Calgary, Alberta-based company’s existing operations in the Powder River Basin.

The acquired assets consist of about a 96% working interest in roughly 55,700 net acres of land. Production is about 2,500 barrels of oil equivalent per day (boe/d), of which 63% is oil and NGL, with an estimated annual base decline rate of 13%.

Vermilion estimates the cost of its recent acquisition is about 6.4 times debt-adjusted cash flow based on 2018 annualized cash flow. The company financed the transaction by drawing on its revolving credit facility, which was expanded by $200 million to $1.8 billion following the acquisition.

Vermilion first entered the Powder River Basin in 2014 through the acquisition of 53,000 net acres in the Turner Sand play of northeastern Wyoming for $11.1 million, which also marked the company’s entry into the U.S. The company has since acquired additional lands and now holds more than 81,500 net acres in the Powder River Basin, pro forma for its recent acquisition.

“The acquisition expands our presence in a highly-prospective basin where we already operate and are familiar with the land, regulatory, reservoir and geologic characteristics,” the company said in a statement.

All of the production on the recently acquired Powder River Basin assets is operated and 93% is HBP, giving Vermilion control over the pace of development. About half of the current production comes from three federal secondary recovery units in the Muddy formation, with the remainder coming from higher-netback production from Turner Sand horizontal producers.

Vermilion said it has identified 93 future drilling locations on the acquire acreage targeting light oil in the Turner and Parkman tight sandstones, which are expected to be developed using horizontal wells with multistage fracks. In these future development zones, the company expects production and reserves to be comprised of about 75% crude oil and NGL.

Additionally, the company noted significant infrastructure already exists in the area, including gas gathering and water source and disposal, which it expects to simplify future development.